Defenders of the status quo used to claim that school choice was a radical idea, but it’s hard to defend that position since nations such as Sweden, Chile, and the Netherlands have adopted competitive systems.

This list could go on, but the pattern is always the same. People assume something has to be done by government because “that’s the way it’s always been.” Then reform begins to happen and the myth is busted.

Why must our government make currency competition illegal? …Competition is generally good. Why not competition in currencies? Most people I interviewed scoffed at the idea. They said private currency should be illegal. But impressive thinkers disagree. In 1975, a year after he won the Nobel Prize in economics, F.A. Hayek published “Choice in Currency,”which has inspired a generation of “free banking” economists. Hayek taught us that competition not only respects individual liberty, it produces essential knowledge we cannot obtain any other way. Any central bank is limited in its access to such knowledge, and subject to political pressure, no matter how independent it’s supposed to be. “This monopoly of government, like the postal monopoly, has its origin not in any benefit it secures for the people but solely in the desire to enhance the coercive powers of government,” Hayek wrote. “I doubt whether it has ever done any good except to the rulers and their favorites. All history contradicts the belief that governments have given us a safer money than we would have had without their claiming an exclusive right to issue it.” Former Federal Reserve economist David Barker discussed this idea recently with me. “There are a lot of ways that private money might be better,” Barker said. “It might have embedded chips that would make it easier to count.” The chips would also prevent counterfeiting. There used to be private currencies. A businessman who sold iron and tin made coins that advertised his business. The Georgia Railroad Co. also produced its own currency. This became illegal in 1864 — Abraham Lincoln was a fan of central banking.

Stossel’s historical references are particularly important. As I explain in this video, many nations – including the United States – used to have competing currencies.

And if you want a thorough analysis of the Fed’s performance, I urge you to watch this George Selgin speech. Then ask yourself whether we would have been in better shape with private currencies.

17 Responses

Can’t get there from here.
The enforced absence of any currency competition in the US is the ONLY thing that is keeping the dollar afloat.

As far as the absence of the Federal Reserve being an “untested” idea, it was created in 1913 in response to a series of financial panics, onstensibly with the objectives to maximize employment, stablize prices, and moderate long-term interest rates. Instead it has become a tool for the government to enact un-voted for universal taxation with its planned inflation, created debt, monopolized that debt, made taxpayers the insureres of that debt, allowed it to run the economy and in a way that favors big banks and Wall Street, and creates more financial crisis than we had when it was formed to stop them. It is run in secret by people who have a hisotry of making the wrong call, over and over again.

America got along fine without it for the first 137 years. We would argueably have been no worse without it.

Some competition already exists: Foreign currencies that are increasingly better managed (only in a relative sense really, because the dollar is so deceptively mismanaged these days). So people who hold dollars are basically capitulating to a slow motion redistribution where their past work and delayed gratification is being diluted to serve:…. You guessed it, “The People”. It’s a slow motion covert redistribution – well covert for the majority of people who cannot apply even elementary arithmetic to real life situations.

Sure, currency exchange mechanisms are still not that efficient for everyday use, but as with most things these days, that will change due to the truly new transforming element in our world: Mobility. Mobility of jobs, mobility of capital and ultimately massive mobility of people. Those who get on board to adopting this irreversible reality will prosper. Those who attempt to sandbag it with legislative gimmicks (akin to legislating against gravity) will perish. The more they sandbag, the more turbulent their end will be when the dam of gimmicks must eventually break against the waters of reality, to which they have not provided any outlet.

So, of course, in typical Ostrich suicide fashion the American people could sure be talked into mounting a futile temporary fight against fundamental reality by erecting barriers to the free exchange of currencies (I’m sure some politician will pick up the cause — and a lemming majority may just follow yet one more hopeful attempt that someone smarter, someone more competent or someone simply harder working, will indirectly labor to keep the Average American’s standard of living in the top 5% worldwide). But as all such gimmicks which essentially sandbag the river of reality without outlet, reverting to the tactics of oppressive regimes that no longer exist will only make the end days of decline all the more turbulent.

But don’t count on the people being rational at this point. I have seen this movie before. From this point in the vicious cycle that America has entered, anything is possible. Look how the American people have already adopted barriers not only to immigration, but EMIGRATION too – with attempt to punish not only the fleeing but also the relatives he leaves behind (revocation of citizenship that irrevocably severs family ties if you no longer want to pay ransom to the distant and irrelevant homeland while living and working overseas) the hallmark of oppressive mobocracies, most of whom no longer exist. The situation could become explosive (or I should say implosive) quickly. This is the 21st century and everything moves ever faster. Declines that used to take centuries are now on a time constant of a couple of decades.

Competing currencies is exactly what Ron Paul wants, right? He did popularize the term “end the fed” because of his book but what he is proposing now is competing currencies. All of you should officially endorse him now. Enough with this nonsense politics between Cato or whatever other organization. Bottom line is that if Ron Paul wins wars will end regardless if congress will ever pass a law to legalize competing currencies.

[…] I also have a video, explaining how central banks arose and noting that private markets were responsible for money in the past and could fulfill that role in the future (John Stossel also has weighed in on that topic) […]